There are many official currencies used all over the world. But just a handful of currencies regularly traded on the forex market. In currency trading, only the most economically / politically stable and liquid currencies are needed in sufficient quantities. For example, because of the size and strength of the US economy, the US dollar is the most widely traded currency in the world.
- Forex markets are used for trading in exchange rates between two or more national currencies.
- All trade on the forex market, whether it is selling, purchasing, or trade, will take place via currency pairs.
- The most common often involve the US dollar or the Euro, but they may also appear between geographical neighbors such as Australia and New Zealand.
What are currency pairs
Currency pairs are the combined national currencies of two countries for trading on the foreign exchange (FX) marketplace. Both currencies would have exchange rates on which to base trade on their position. All trade on the forex market, whether it is selling, purchasing, or trade, will take place via currency pairs.
Generally, the eight most traded currencies (in no particular order) are the U.S. dollar (USD), the Canadian dollar (CAD), the euro (EUR), the British pound (GBP), the Swiss franc (CHF), the New Zealand dollar (NZD), the Australian dollar (AUD) and the Japanese yen (JPY).
Nearly every nation’s currency may trade, but some currencies are paired more frequently than other currencies. The USD is used in all primary currency pairs. There are several big currency pairs in the forex market around the world. As an example, some of the most common currency pairs outside the eurodollar are:
- It’s USD / JPY. The currency pair sets the US dollar against the Japanese yen.
- USD / GBP. This currency pair sets the US dollar against the United Kingdom pound and is generally referred to as the pound dollar.
- That’s USD / CHF. This currency pair sets the US dollar against the Swiss yen. It’s referred to as the Swiss dollar.
- It’s USD / CAD. The currency pair sets the US dollar against the Canadian dollar. It’s called the dollar-loonie.
- AUD / USD, man. This currency pair sets the US dollar against the Australian dollar and is referred to as the Australian dollar.
- U.S.D./USD. This currency pair sets New Zealand’s currency against the US dollar and is referred to as the kiwi dollar.
There are also currency pairs that do not compete against the US dollar, which have the name of cross-currency pairs. Some popular ones are the euro and the Japanese yen.
Most widely traded currency pairs on the Forex market by value
Currencies have to be sold in pairs. Mathematically, there are 27 separate currency pairs that can be extracted from only eight currencies. However, there are about 18 currency pairs that are commonly quoted by forex marketers as a result of their overall liquidity. These pairs are the following:
The total amount of currency trading involving these 18 pairs represents the majority of the trading volume on the FX market. This small number of choices makes trading a lot less difficult than dealing with equities, which has thousands of options to choose from.